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TMI Blog2024 (8) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/s. 40(a)(i) of the Act - Decided against revenue. Disallowance of leased line/data link charges - This issue is no more res integra as the same is settled in favour of the assessee by the Hon ble Supreme Court in the case of CIT Vs. Kotak Securities Ltd. [ 2016 (3) TMI 1026 - SUPREME COURT ] wherein it was held that the charges paid towards leased line are not in the nature of Technical services within the meaning of section 9(1)(vii) of the Act.The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression technical services appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act - Decided in favour of assessee. - Shri G. D. Padmahshali, Accountant Member And Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not deducted on this payment. The Assessing Officer enquired about the reason for non-deduction of TDS on both the above payments. In response, it was submitted by the assessee that the TDS is not required to be made on above payment of Rs. 4.87 crore being payment made to parent company and it does not fall in definition of FTS and Rs. 41,34,292/- payment of leased line charges/data link charges also does not attract liability of TDS. Being unsatisfied with the reply of the assessee, the Assessing Officer passed an assessment order u/s 143(3) of the IT Act on an income of Rs. 77,08,55,040/- against the income returned by the assessee at Rs. 71,76,93,230/-. The above assessed income includes disallowance u/s 40(a)(ia) of the IT Act of Rs. 5,28,11,810/- (Rs.4,86,77,518/- + Rs. 41,34,292/-). The Assessing Officer also initiated penalty proceedings u/s 271(1)(c) of the IT Act on the basis of above addition/disallowance. 4. Being aggrieved with the above assessment order, an appeal was preferred before the ld. CIT(A)/NFAC, who vide impugned order dated 03.11.2023 dismissed the appeal of the assessee after considering the reply of the assessee. 5. Being aggrieved with the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is seen that the ld. CIT (A) admitted that the clause (b) is not attracted to the facts of the instant case because CMA CGM, France did not make available any technical knowledge, experience or skill etc. to the assessee. In so far as clause (a) is concerned, it talks of any payment for services which are ancillary and subsidiary to the application or enjoyment of the right, property or information for which payment described in paragraph 3 is received. It is only if the services ancillary to the enjoyment of right, property or information as per para 3 are availed that they will fall within the ambit of 'fees for included services'. Para 3, in turn, defines the term Royalties to mean : 'payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work . . To this extent, the definition of 'royalties as per the DTAA with Portuguese is similar to that given under section 9(1)(vi) of the Act in as much as it also talks of 'consideration for the use or, or the right to use, any copyright of literary, artistic or scientific work.. . While discussing the Royalty aspect under the Act supra, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident any sum by way of (a) fees for professional services, or (b) fees for technical services or (c) royalty, or (d) any sum referred to in clause (va) of section 28 shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein: .............................. .............................. Explanation. For the purposes of this section, (a)............................ (b) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; .............................. 40. Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession (a) in the case of any assessee- (i) ...... .. ... (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt view taken by the courts including this Court in Bharti Cellular Ltd. (supra). However, it cannot be lost sight of that modern day scientific and technological developments may tend to blur the specific human element in an otherwise fully automated process by which such services may be provided. The search for a more effective basis, therefore, must be made. 8. A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/ single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. Technical services like Managerial and Consultancy service would denote seeking of services to cater to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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